Standard Ontario automobile insurance policies require the insurance company to provide $200,000 of unidentified driver coverage in its policy of insurance. The insurance company may deduct benefits paid to an insured from private insurance plans from the $200,000 policy limit, even when the result would be less than full indemnification to the insured.

Kosanovic v. Wawanesa Mutual Insurance Co., [2004] O.J. No. 1234, Ontario Court of Appeal

The insured was injured in a car accident on September 7, 1997. The driver of the other car, who was at fault for the accident, left the scene and was never identified. Wawanesa Mutual Insurance Company (“Wawanesa”) had a standard Ontario automobile policy with the insured. The policy entitled an insured to compensation for injuries suffered by an unidentified driver, up to a $200,000 limit. The insured also owned a disability policy with Great West Life, from which he received $102,400 in benefits due to a disability arising from the accident.

Section 2(1)(b) of the Schedule to Uninsured Automobile Coverage (Insurance Act), R.R.O. 1990, Regulation 676 limits an insurer’s liability to an insured injured by an unidentified driver to the difference between the minimum policy limits and any funds recovered “under any valid policy of insurance”. Wawanesa deducted the $102,400 paid to its insured by Great West Life from the $200,000 that it owed its insured for injuries sustained in the accident. The insured petitioned the court for a declaration of entitlement to the full $200,000 on the basis that the benefits paid by Great West Life did not fall within the purview of Section 2(1)(b). Kent J. ruled that Wawanesa was not entitled to deduct the insurance proceeds received by its insured from Great West Life because section 2(1)(b) did not override the common law private insurance exception to the rule against double recovery. Wawanesa appealed the motions judge’s decision to the Ontario Court of Appeal.

Laskin J.A., for the court, noted that Ontario had implemented a no-fault principle with respect to automobile insurance, which limited access to the court system to cases where the injured person had died or met a statutory threshold – now “a permanent serious disfigurement”, or a “permanent serious impairment of an important physical, mental or psychological function”. All parties agreed that the insured’s injuries exceeded the $200,000 limit in the Wawanesa policy. Although the insured had a valid tort claim, it had no practical value since the driver of the vehicle had not been identified. The insured brought his claim pursuant to section 265(1) of the Insurance Act, R.S.O. 1990, c. I.8, which provides that an insured may recover from their own insurer all sums they are legally entitled to recover from an uninsured or unidentified driver as damages for bodily injury, “subject to the terms, conditions, provisions, exclusions and limits prescribed by the regulations”.

Laskin J.A. noted that the clear language of section 2(1)(b) of Ontario Regulation 676 authorizes Wawanesa to deduct the amount that its insured received from Great West Life. The court noted that the Ontario Court of Appeal had put two qualifications upon an insurer’s right to deduct insurance benefits under section 2(1)(b). The first qualification, summarized in Quiroz v. Wallace (1998), 40 O.R. (3d) 737, is reflected in the colloquial phrase “apples should be deducted from apples”. This situation does not apply to the case at bar, because the payment that the insured received from Great West Life was for the same head of damages that Wawanesa was required to provide to its insured under the automobile policy. The second qualification, summarized in Gignac v. Neufeld et al (1999), 43 O.R. (3d) 741, is based on the principle that insurance proceeds cannot be deducted from an award more than once. This qualification does not apply to the case at bar, because the payments made by Great West Life would not be subject to deduction under a tort award [available tort deductions are enumerated in section 267.8(1)2 of the Insurance Act].

The Ontario Court of Appeal ruled that Wawanesa was entitled to deduct the insurance proceeds received by its insured from Great West Life, and was required to pay $97,600, not the $200,000 policy limit. The court noted in obiter that Wawanesa was nominally standing in the place of an unidentified tortfeasor, and was therefore not a tortfeasor. Therefore, the main rationale for maintaining a private insurance exception to the rule against double recovery – that a tortfeasor should not benefit from an insured’s prudence and foresight – does not apply. Wawanesa’s unidentified driver coverage provides a mandated safety net to insureds, and as such the main policy reason for deducting private insurance does not apply.

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